The Securities and Exchange Board of India (Sebi) has tightened its scrutiny on the targets for raising fresh capital through initial public offers (IPOs), reported. Business Line attributing to two people known.
The regulator has expressed its displeasure with companies choosing to raise money mostly to repay debt and is asking for more disclosures.
Need clarification
“SEBI conducted an analysis of several IPO offer documents and found that the majority stated repayment of debt as the main purpose for raising fresh capital. This prompted the regulator to dig deeper into the reasons why fresh capital was raised,” said an investment banker.
Companies must explain whether there have been arrears, defaults and perpetuation of outstanding loans, for which a portion of the net proceeds will be used for repayment.
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Companies are supposed to give reasons why the promoter lock-in should not be increased if the subject matter is to repay loans to finance capital expenditures, and the amount to be used for repayment and capex is more than 50 percent of the amount being raised. for a new thing.
“The regulator explained that companies cannot be vague about the objects of the matter, which I think is fair. It wants appropriate details and some level of comfort about how the fresh capital will be spent,” said an industry official.
Companies that want to raise fresh capital for expansion must provide granular details about how the proceeds will be used.
“Companies must be prepared to disclose granular details. Otherwise, it is better not to raise a new issue as it will lead to further scrutiny and delays. SEBI is also entitled to ask the company to change the objects of the issue, which will require fresh shareholder approval,” said the above quoted banker.
Non-manufacturing companies may find it difficult to provide details on how the fresh revenue will be used, the industry official added.
Raising Capital
The amount of fresh capital raised in IPOs in calendar year 23 was ₹20,662 crore, or 42 percent of the total amount raised, the highest in terms of percentage share in seven years, according to PRIME database.
A third of the fresh capital raised was for working capital needs. Retirement of debt (22 percent), expansion or establishment of new plant and machinery (15 percent), general corporate purposes (11 percent) and expenses (9 percent)
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Published: 08 Feb 2024, 15:42 IST